GEORGE SOROS: 'These times are not business as usual. Wishing you the best in a troubled world'

Well before Donald Trump was elected president of the United
States, I sent a holiday greeting to my friends that read: “These
times are not business as usual. Wishing you the best in a
troubled world.” Now I feel the need to share this message with
the rest of the world.

But before I do, I must tell you who I am and what I stand for.

I am an 86-year-old Hungarian Jew who became a US citizen after
the end of World War II. I learned at an early age how important
it is what kind of political regime prevails. The formative
experience of my life was the occupation of Hungary by Hitler’s
Germany in 1944. I probably would have perished had my father not
understood the gravity of the situation. He arranged false
identities for his family and for many other Jews; with his help,
most survived.

In 1947, I escaped from Hungary, by then under Communist rule, to
England. As a student at the London School of Economics, I came
under the influence of the philosopher Karl Popper, and I
developed my own philosophy, built on the twin pillars of
fallibility and reflexivity. I distinguished between two kinds of
political regimes: those in which people elected their leaders,
who were then supposed to look after the interests of the
electorate, and others where the rulers sought to manipulate
their subjects to serve the rulers’ interests. Under Popper’s
influence, I called the first kind of society open, the second
closed.

The classification is too simplistic. There are many degrees and
variations throughout history, from well-functioning models to
failed states, and many different levels of government in any
particular situation. Even so, I find the distinction between the
two regime types useful. I became an active promoter of the
former and opponent of the latter.

I find the current moment in history very painful. Open societies
are in crisis, and various forms of closed societies — from
fascist dictatorships to mafia states — are on the rise. How
could this happen? The only explanation I can find is that
elected leaders failed to meet voters’ legitimate expectations
and aspirations and that this failure led electorates to become
disenchanted with the prevailing versions of democracy and
capitalism. Quite simply, many people felt that the elites had
stolen their democracy.

After the collapse of the Soviet Union, the US emerged as the
sole remaining superpower, equally committed to the principles of
democracy and free markets. The major development since then has
been the globalization of financial markets, spearheaded by
advocates who argued that globalization increases total wealth.
After all, if the winners compensated the losers, they would
still have something left over.

The argument was misleading because it ignored the fact that the
winners seldom, if ever, compensate the losers. But the potential
winners spent enough money promoting the argument that it
prevailed. It was a victory for believers in untrammeled free
enterprise, or “market fundamentalists,” as I call them. Because
financial capital is an indispensable ingredient of economic
development, and few countries in the developing world could
generate enough capital on their own, globalization spread like
wildfire. Financial capital could move around freely and avoid
taxation and regulation.

Globalization has had far-reaching economic and political
consequences. It has brought about some economic convergence
between poor and rich countries; but it increased inequality
within both poor and rich countries. In the developed world, the
benefits accrued mainly to large owners of financial capital, who
constitute less than 1% of the population. The lack of
redistributive policies is the main source of the dissatisfaction
that democracy’s opponents have exploited. But there were other
contributing factors as well, particularly in Europe.

I was an avid supporter of the European Union from its inception.
I regarded it as the embodiment of the idea of an open society:
an association of democratic states willing to sacrifice part of
their sovereignty for the common good. It started out at as a
bold experiment in what Popper called “piecemeal social
engineering.” The leaders set an attainable objective and a fixed
timeline and mobilized the political will needed to meet it,
knowing full well that each step would necessitate a further step
forward. That is how the European Coal and Steel Community
developed into the EU.

But then something went woefully wrong. After the rash of 2008, a
voluntary association of equals was transformed into a
relationship between creditors and debtors, where the debtors had
difficulties in meeting their obligations and the creditors set
the conditions the debtors had to obey. That relationship has
been neither voluntary nor equal.

Germany emerged as the hegemonic power in Europe, but it failed
to live up to the obligations that successful hegemons must
fulfill, namely looking beyond their narrow self-interest to the
interests of the people who depend on them. Compare the behavior
of the US after WWII with Germany’s behavior after the crash of
2008: The US launched the Marshall Plan, which led to the
development of the EU; Germany imposed an austerity program that
served its narrow self-interest.

Before its reunification, Germany was the main force driving
European integration: It was always willing to contribute a
little bit extra to accommodate those putting up resistance.
Remember Germany’s contribution to meeting Margaret Thatcher’s
demands regarding the EU budget?

But reuniting Germany on a 1:1 basis turned out to be very
expensive. When Lehman Brothers collapsed, Germany did not feel
rich enough to take on any additional obligations. When European
finance ministers declared that no other systemically important
financial institution would be allowed to fail, German Chancellor
Angela Merkel, correctly reading the wishes of her electorate,
declared that each member state should look after its own
institutions. That was the start of a process of disintegration.

After the Crash of 2008, the EU and the eurozone became
increasingly dysfunctional. Prevailing conditions became far
removed from those prescribed by the Maastricht Treaty, but
treaty change became progressively more difficult, and eventually
impossible, because it couldn’t be ratified. The eurozone became
the victim of antiquated laws; much-needed reforms could be
enacted only by finding loopholes in them. That is how
institutions became increasingly complicated, and electorates
became alienated.

The rise of anti-EU movements further impeded the functioning of
institutions. And these forces of disintegration received a
powerful boost in 2016, first from Brexit,
then from the
election of Trump in the US, and on December 4 from Italian
voters’ rejection, by a wide margin, of
constitutional reforms.

Donald
Trump is sworn in as the 45th president of the United States,
Washington, DC, Friday, January 20, 2017.AP/Matt Rourke

Democracy is now in crisis. Even the US, the world’s leading
democracy, elected a con artist and would-be dictator as its
president. Although Trump has toned down his rhetoric since he
was elected, he has changed neither his behavior nor his
advisers. His Cabinet comprises incompetent extremists and
retired generals.

What lies ahead?

I am confident that democracy will prove resilient in the US. Its
Constitution and institutions, including the fourth estate, are
strong enough to resist the excesses of the executive branch,
thus preventing a would-be dictator from becoming an actual one.

But the US will be preoccupied with internal struggles in the
near future, and targeted minorities will suffer. The US will be
unable to protect and promote democracy in the rest of the world.
On the contrary, Trump will have greater affinity with dictators.
That will allow some of them to reach an accommodation with the
US, and others to carry on without interference. Trump will
prefer making deals to defending principles. Unfortunately, that
will be popular with his core constituency.

I am particularly worried about the fate of the EU, which is in
danger of coming under the influence of Russian President
Vladimir Putin, whose concept of government is irreconcilable
with that of open society. Putin is not a passive beneficiary of
recent developments; he worked hard to bring them about. He
recognized his regime’s weakness: It can exploit natural
resources but cannot generate economic growth. He felt threatened
by “color revolutions” in Georgia, Ukraine, and elsewhere. At
first, he tried to control social media. Then, in a brilliant
move, he exploited social-media companies’ business model to
spread misinformation and fake news, disorienting electorates and
destabilizing democracies. That is how he helped Trump get
elected.

The same is likely to happen in the European election season in
2017 in the Netherlands, Germany, and Italy. In France, the two
leading contenders are close to Putin and eager to appease him.
If either wins, Putin’s dominance of Europe will become a fait
accompli.

I hope that Europe’s leaders and citizens alike will realize that
this endangers their way of life and the values on which the EU
was founded. The trouble is that the method Putin has used to
destabilize democracy cannot be used to restore respect for facts
and a balanced view of reality.

With economic growth lagging and the refugee crisis out of
control, the EU is on the verge of breakdown and is set to
undergo an experience similar to that of the Soviet Union in the
early 1990s. Those who believe that the EU needs to be saved in
order to be reinvented must do whatever they can to bring about a
better outcome.

Copyright: Project Syndicate, 2017. This essay has been
republished with permission. It was originally
published on December 30, and Soros discussed it further
during a Davos dinner in mid-January 2017.

This is an opinion column. The thoughts expressed are those of the author.